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AT&T (T) to Acquire Time Warner in $85.4 Billion Mega Deal
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In a major thrust to the ongoing consolidation trend between the telecom and media sectors, U.S. telecom behemoth AT&T Inc. (T - Free Report) has agreed to acquire media giant Time Warner Inc. in a $85.4 billion cash-and-stock deal.
Under the terms of the merger, Time Warner shareholders will receive $107.50 per share, comprising $53.75 in cash and $53.75 in AT&T stock. Post transaction, Time Warner shareholders will own between 14.4% and 15.7% of AT&T shares on a fully-diluted basis, depending on the number of AT&T shares outstanding on Oct 22, 2016. The cash portion of the purchase price will be financed with new debt and cash on AT&T’s balance sheet.
The merger is subject to approval by Time Warner’s shareholders and a review by the U.S. Department of Justice. The deal may also be contingent upon a review by the Federal Communication Commission (FCC) if an FCC license is transferred to AT&T in connection with the transaction. The merger is expected to be complete by the end of 2017.
AT&T’s management expects the deal to be accretive to both adjusted earnings and free cash flow in the first year post its closure. The company is likely to achieve cost synergies of $1 billion per annum within the first three years of the merger. The company expects the deal help to diversify its revenue mix, lower capital expenditure and reduce regulatory restrictions.
Our View
If the proposed merger finally goes through, the combined entity will become a major player in the consolidated telecom-media space. AT&T is the second-largest telecom operator with a nationwide presence in both the wireless and wireline front. Last year, the company had become the largest pay-TV operator in the U.S. with its acquisition of leading satellite TV operator, DIRECTV. It already has a strong presence in the Mexican wireless market and several Latin American pay-TV markets.
The proposed merger with Time Warner will provide AT&T a portfolio of lucrative contents. Time Warner's media empire includes HBO and Turner Broadcasting, which has the rights to sports telecasts. It also owns the Warner Bros. film studio and cable networks TNT, TBS and CNN. Moreover, Time Warner owns a 10% stake in Internet video provider Hulu. Meanwhile, AT&T plans to launch its over-the-top video service, DIRECTV Now, by the end of this year. Therefore, the company will enjoy control over both high-quality content and distribution medium.
Staying Ahead of Competition
Traditional telecom and pay-TV operators are facing severe competitive threat at present. Large tech and Internet firms like Alphabet, Facebook and Amazon are foraying into the telecom-media space, armed with massive financing.
Even within the industry, cable TV giant Comcast Corp. (CMCSA - Free Report) became a media mogul after acquiring NBC Universal in 2011. The company is set to enter the wireless field in mid 2017. Verizon Communications Inc. (VZ - Free Report) took over AOL to target the lucrative online advertising market and its impending acquisition of Yahoo Inc. may provide the company access to world-class online content.
Therefore, we believe AT&T’s decision to acquire Time Warner will place it to remain competitive in the changed market condition. Both AT&T and Time Warner Cable currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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AT&T (T) to Acquire Time Warner in $85.4 Billion Mega Deal
In a major thrust to the ongoing consolidation trend between the telecom and media sectors, U.S. telecom behemoth AT&T Inc. (T - Free Report) has agreed to acquire media giant Time Warner Inc. in a $85.4 billion cash-and-stock deal.
Under the terms of the merger, Time Warner shareholders will receive $107.50 per share, comprising $53.75 in cash and $53.75 in AT&T stock. Post transaction, Time Warner shareholders will own between 14.4% and 15.7% of AT&T shares on a fully-diluted basis, depending on the number of AT&T shares outstanding on Oct 22, 2016. The cash portion of the purchase price will be financed with new debt and cash on AT&T’s balance sheet.
The merger is subject to approval by Time Warner’s shareholders and a review by the U.S. Department of Justice. The deal may also be contingent upon a review by the Federal Communication Commission (FCC) if an FCC license is transferred to AT&T in connection with the transaction. The merger is expected to be complete by the end of 2017.
AT&T’s management expects the deal to be accretive to both adjusted earnings and free cash flow in the first year post its closure. The company is likely to achieve cost synergies of $1 billion per annum within the first three years of the merger. The company expects the deal help to diversify its revenue mix, lower capital expenditure and reduce regulatory restrictions.
Our View
If the proposed merger finally goes through, the combined entity will become a major player in the consolidated telecom-media space. AT&T is the second-largest telecom operator with a nationwide presence in both the wireless and wireline front. Last year, the company had become the largest pay-TV operator in the U.S. with its acquisition of leading satellite TV operator, DIRECTV. It already has a strong presence in the Mexican wireless market and several Latin American pay-TV markets.
The proposed merger with Time Warner will provide AT&T a portfolio of lucrative contents. Time Warner's media empire includes HBO and Turner Broadcasting, which has the rights to sports telecasts. It also owns the Warner Bros. film studio and cable networks TNT, TBS and CNN. Moreover, Time Warner owns a 10% stake in Internet video provider Hulu. Meanwhile, AT&T plans to launch its over-the-top video service, DIRECTV Now, by the end of this year. Therefore, the company will enjoy control over both high-quality content and distribution medium.
Staying Ahead of Competition
Traditional telecom and pay-TV operators are facing severe competitive threat at present. Large tech and Internet firms like Alphabet, Facebook and Amazon are foraying into the telecom-media space, armed with massive financing.
Even within the industry, cable TV giant Comcast Corp. (CMCSA - Free Report) became a media mogul after acquiring NBC Universal in 2011. The company is set to enter the wireless field in mid 2017. Verizon Communications Inc. (VZ - Free Report) took over AOL to target the lucrative online advertising market and its impending acquisition of Yahoo Inc. may provide the company access to world-class online content.
Therefore, we believe AT&T’s decision to acquire Time Warner will place it to remain competitive in the changed market condition. Both AT&T and Time Warner Cable currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>